NCB predicts Ryanair fare hikes

RYANAIR is likely to increase fares by 9% this year, according to NCB stockbrokers.

NCB also said the re-opening of the airline’s Valencia base demonstrates its increased bargaining power with airports following the recession. NCB analyst George Humphreys said Ryanair’s route network has improved strongly over the last couple of years as it has allocated aircraft to operationally leveraged airports where other airlines have withdrawn capacity. “We expect fares at Ryanair to rise by 9% this year,” he said. According to the latest figures from the Central Statistics Office (CSO) airfares are up 20% in the year to May and jumped 14% from April to May this year.

Ryanair signalled earlier this year that it was planning on increasing fares this year for the first time in four years in order to sustain earnings growth.

Meanwhile Goodbody stockbrokers said Aer Lingus’ 60% exposure to Ireland, 17% to Britain and 14% to North America ensured a “difficult backdrop” for the past 18 months, particularly Ireland, where domestic demand collapsed by around 20%, back to 2004 levels. It said fares fell by 19% peak to trough in short haul and by 16% in long haul. Goodbody estimates that the €97 million Aer Lingus restructuring plan recently agreed will help keep ex-fuel costs per available seat kilometre (CASK) relatively flat, at a time when airport charges are moving up materially.

“At the same time, recent revenue trends have stabilised, with the airline reporting a 3% yield improvement in Q110 in short haul and 12% for long haul (we have 4% and 14% respectively in our models for FY10),” said analyst, Eamon Hughes.

He said consumption patterns in Ireland have “moved past the worst”, with VAT receipts and retail sales moving back into positive territory for the first time since the first quarter of 2008, on a three-month rolling basis. He added that Irish GDP is on track for quarter on quarter growth in the second half of 2010 and Goodbody recently raised its estimated GDP decline of 1.1% for this year to a flat out-turn.

“This improving backdrop should see the airline return to operating profits in FY11, forecast at €51m. We expect net cash to continue to erode modestly this year before stabilising at €320m for FY10,” he said.